The National Bank of Ukraine welcomes the draft law No. 2085 On Amendments to Some Legislative Acts of Ukraine with regard to the responsibility born by the bank’s related parties, initiated by the President and approved by the Verkhovna Rada of Ukraine in first reading and in general (hereinafter – the Law).
"The move marks a revolutionary step in reforming the banking system. I am grateful to the deputies of the Verkhovna Rada who demonstrated unity and took a consolidated stance on this issue yesterday. Coupled with the supplementary budget, this law represents a package of amendments needed for the disbursement of funds from the International Monetary Fund," noted Governor of the National Bank of Ukraine Valeriia Gontareva.
"The need to adopt this draft law has been prompted by the necessity to close all the loops in the legislation allowing the bank’s related parties to avoid taking responsibility for inflicting losses to banks and mismanagement leading the bank to insolvency. It primarily refers to the shady bank owners who take advantage of the law's vagueness and hide away from the banking supervisory authorities by using off-shore companies, trust and other instruments to hide ownership, and sometimes resort to the practice of using fictitious persons as holders of bank shares. The unscrupulous bank managers use these schemes to misreport the value of transactions with related parties, thus depriving the National Bank of the opportunity to exercise banking supervision in an efficient manner," said Director of the Registration and Licensing Department Leonid Antonenko.The adopted Law provides the National Bank of Ukraine with efficient instruments to identify related parties, thus boosting the existing potential of the law on the responsibility of related parties. Additional measures are taken to prevent corrupt practices by bank owners who abuse conventional legal rights protection instruments using them as a shield against loss claims. The draft law places greater civil, administrative and criminal responsibility for inflicting losses to the bank as a result of the wrongdoing of the bank’s related parties.
The law, inter alia, places criminal responsibility on the bank's managers and related parties for actions leading their banks to insolvency and obliges them to compensate losses arising from the bankruptcy of financial institutions. Malicious mismanagement leading the bank to insolvency will be punished by sentencing offenders to jail term ranging from 1-5 years; offenders could also face a jail term of up to five years and a fine ranging from UAH 85 thousand to 170 thousand.
The law tightens disclosure requirements for the bank ownership structure. Apart from publishing information about the owners of qualifying holding in a bank, the law also obliges banks to disclose information on so-called banks' "key stakeholders", or individuals who directly or indirectly through other legal entities hold corporate rights in a bank. If the number of such individuals is more than twenty, the law demands disclosure of information on the twenty largest shareholders (stakeholders) in the bank, as well as each legal entity in the bank's corporate rights chain. The law also envisages some exceptions to the rules governing disclosure of information on the bank's key stakeholders. For instance, the disclosure requirement shall not apply to the shareholders of public companies listed on international stock exchanges that meet the criteria set by the National Bank of Ukraine.
The adoption of this law is part of the commitments undertaken by Ukraine to adhere to the international standards on prudential regulation and supervision. This, among other things, refers to the implementation of the twentieth principle set forth in the Basel Core Principles of Effective Supervision in terms of control over operations with related parties. The International Monetary Fund is guided by this principle.